Barriers to take-up of advice
1. The IFoA and others have highlighted the āadvice gapā between those who take financial advice and the larger group that could potentially benefit from it. For example:
- showed only 9% of consumers had paid for financial advice in the previous two years, but the vast majority of those who had (91%) found it helpful.
- IFoA research entitled āFreedom and Choice: Public attitudes seven years onā (2022) focused on widespread financial concerns among a prime audience for financial advice: those approaching retirement. 22% of savers worried about running out of money in retirement, and only 26% fully understood their pension charges.
2. There is evidence that taking advice (especially through an ongoing relationship with an advisor) leads to better outcomes, for example the . In The Lang Cat study, the main barriers to taking advice reported by consumers were affordability, whether it can be trusted, and whether it would lead to financial benefits.
3. An additional factor the IFoA has raised is that current HMRC rules do not generally allow pension schemes, employers or members using their own pots to pay for holistic advice (including pensions matters) without significant tax consequences.
The advice-guidance boundary
4. Holistic advice involves a personal recommendation by an adviser who takes account of a consumerās overall financial circumstances and objectives. This is a regulated activity ā firms providing holistic advice need to be FCA authorised.
5. Guidance is also offered by a range of providers. This consists of generic, factual information to help consumers make financial decisions, but does not include a personal recommendation. An important source of guidance is , which combines the services of three government-backed financial guidance providers: the Money Advice Service, the Pensions Advisory Service and Pension Wise. The data from our pension freedoms research (see link in paragraph 1) shows that despite such guidance being free there is still low take-up.
6. The regulatory requirements around holistic advice are quite intensive, including things such as carrying out an initial customer fact find and required qualifications for advisers. Firms therefore often provide such advice only for higher-wealth clients.
Targeted support
7. In consultation paper CP25-17 the FCA proposes a non-regulated solution to fill the gap between guidance and holistic advice. This is ātargeted supportā: āItās not fully personalised financial advice, and it will not be tailored to the specific needs of individuals. It is designed for groups of consumers with common characteristics. But it will enable firms to better support consumersā.
8. The FCA adds (2.17) that firms should only offer targeted support āin circumstances where it is reasonable to consider that those suggestions will lead to a better outcome than if the targeted support had not been provided.ā For example, it will improve the likelihood of an adequate income in retirement.
9. The IFoA welcomes the proposals for targeted support in the consultation. We want to see more consumers taking advice, and wider access to it. We think the greatest benefit from targeted support can come from helping people who are currently not taking any advice or guidance. We have expressed concern that the advice may not be right for everyone in a targeted support group.
10. We support exploring whether trust-based pension schemes could provide targeted support. This might be suitable especially for the largest schemes and master trusts.
11. The consultation acknowledges (2.2) that āThere are concerns amongst consumer groups about the level of protection that consumers will be affordedā. There is a concern that firms will use targeted support to persuade consumers to purchase their products. But those consumers will have limited access to redress from the firms if the product is unsuitable, since targeted support will be regulated less strictly than personalised advice.
Simplified advice
12. We think it might be challenging to implement targeted support effectively. Thatās because there could be consumer pressure to take more account of their individual circumstances, while providers will need to base their support on less detail for it to count as targeted advice.
13. Addressing this potential issue, chapter 9 of the FCA consultation deals with āsimplified adviceā, described as āfocused affordable advice to consumers who want individualised recommendationsā (9.3). It proposes rule changes to enable a form of regulated but lighter-touch advice aimed at āconsumers with straightforward needsā.
14. Mutual society Foresters Financial sees its longstanding ābasic adviceā product as a proven form of what the FCA is calling āsimplified adviceā. For historic reasons, Foresters Financial is currently the only firm providing this, but they make the case for scaling it up to meet the needs of several million consumers.
Regulatory timetable
15. CP25/17 is due for comments by 29 August 2025. The FCA intends to publish a policy statement with its final rules on targeted support by the end of 2025.
Conclusion
16. There is evidence that many people are not taking financial advice because of the cost and due to doubts about its veracity and whether it will provide financial benefits. The FCAās targeted support proposals would allow firms to choose whether to charge for this service. Its research suggests most would not charge. Although we expect this to encourage some people to take targeted support, there is evidence that even free guidance like PensionWise has low take-up. Targeted support is likely to be more useful for consumers than guidance but is still not personalised advice. There are also concerns about the impartiality of an unregulated service.
17. The IFoA broadly welcomes the targeted support proposals but believes simplified advice is also worth exploring. The evidence from Foresters Financial is that it has the potential to extend the scope and quality of available advice in the market.